Autos: New Models to resist dampening sales

February 16, 2022 (MLN): With a noticeable 30% MoM drop in passenger car sales in January 2022 due to an increase in prices, rising interest rates, and pre-buying in Dec 2021 in anticipation of tax measures announced in the mini-budget, auto assemblers are finding ways to entice customers with new models that are likely to show some resistance in an anticipated slowdown in auto sales in 2HFY22.

A variety of reasons that propelled the upward swing in 1HFY22 are expected to fade or change course. Unfavourable macro conditions for the Auto industry such as SBP’s restriction on auto financing such as reduction in tenure of auto finance from a maximum limit of 7 years to 5 years and increase in minimum down payment from 15% to 30% coupled with the interest rates that turned higher from 7% to 9.75% are anticipated to taper off the growth in 2HFY22.

However, with two major models, Civic and Swift are expected to be launched in Feb/March 2022 might support the dampening mood, a report by JS Global said.

Meanwhile, it is prudent to note that supply chain issues such as the semiconductor chip shortage have hampered the global Auto Industry, however, the report is of the view that local players have relatively been less impacted especially (INDU, HCAR, PSMC), as the companies were able to timely procure sufficient inventory to meet the crisis.

The report noted that the impact of global chip shortage on the new players (KIA & Hyundai), has been more pronounced leading to the closure of bookings for Hyundai’s Tucson and KIA’s Picanto. As per the management of INDU, the crisis is expected to normalize towards the end of CY22.

On the other hand, the delayed shipments and high freight costs are anticipated to prevail for a longer period. Although automakers have passed on cost pressures, the full quantum of demand destruction is yet to be realized.

As per news reports, multiple dealerships have expressed concern over the decline in demand for auto financing due to the measures taken by the SBP which is likely to lead to lower sale volume and hence delivery times for vehicles. however, the impact has not been visible in the auto financing numbers revealed by the central bank so far, it added.

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